GO Markets - FX Market Commentary

By IBT Staff Reporter On 07/18/10 AT 9:30 PM

Friday’s trade saw the greenback regain some composure after spending the last couple weeks in the doldrums. Deflationary concerns, a less than convincing reading on consumer sentiment and weaker than expected corporate revenues were the primary catalyst for the latest bout of risk aversion, which saw the DOW and S&P 500 sold off 2.52 and 2.88 percent respectively. True to form, the Aussie followed US equities lower as a cautious undertone entered the market closing the week at 86.85 US cents after spending a considerable amount of time above 88 US cents throughout last week.

The latest fall in treasury yields are a testament to the question marks surrounding the US economic recovery. 10yr Yields fell to 2.92 percent on Friday (near 14 month low) and the 2yr Yields traded at all-time lows yielding just .5765 percent.

After recording fresh 9.5 week highs of US$1.30 late last week, the Euro has also slipped lower against the greenback – at the time of writing the Euro is buying US$1.2885. From a technical perspective the latest run of the Euro against the dollar coincides with the RSI (Relative Strength Index) showing overbought signals with the price action around the ‘70’ levels. Technical analysts believe an RSI reading of ‘70’ or greater suggests a reversal of price action is imminent.

The week ahead will see the fortunes of the Euro reactive to the results of European bank stress tests to be released on Friday. The results of which are wildly expected to show European banks can cope in the event of economic meltdown, however, It’s the finer points that will be scrutinized by investors.

Across the Atlantic, US investors are keenly awaiting key housing data which is expected to show growth in the housing sector which remains a primary hindrance on sustained US recovery. Quarterly earnings will also be released from financial heavy weights Goldman Sachs and Morgan Stanly. Tech bellwether Apple will also release Q2 earnings.

Locally, the week ahead will see the release the RBA minutes for the July meeting. The statement released after the meeting showed the RBA’s view of the global economic outlook was less dovish than anticipated. The RBA kept benchmark rates at 4.5 percent “pending information about international and local conditions for demand and prices” – In a statement governor Glenn Stephens acknowledged potential headwinds abroad (in reference to Europe’s uncertain economic outlook and employment woes in the States) however, the bank also suggested local growth is likely to remain about trend going forward. On China, the statement said “There are indications that growth in China is now starting to moderate to a more sustainable rate.”